Anglo-American Contract and Torts Prof. Mark P. Gergen Class Four

1. Anglo-AmericanContract and TortsProf. Mark P. GergenClass Four Injury: pure emotional disturbance and economic loss

2. “An actor ordinarily has a duty to exercise reasonable care when the actor’s conduct creates a risk of physical harm.” Third Restatement § 7(a)(2011). “An actor whose negligence is a factual cause of physical harm is subject to liability for any such harm within the scope of liability . . . .” Third Restatement § 6. English and Commonwealth courts do not have as strong an assumption that a negligence claim probably is available only if the claimant suffers physical harm.

3. A victim of an accident who suffers bodily harm will recover damages for lost wages and for emotional disturbance as well as for medical expenses. If property is physically harmed or destroyed in an accident, then the owner (or someone with a possessory interest) will recover damages for the cost of repairing or replacing the property or for the loss in market value. Sometimes consequential damages are available. But what of victims who do not suffer physical harm to their person or property as a result of an actor’s carelessness?

4. The general bar on claims for “relational economic loss” (or, more delightfully, “ricochet economic loss”) D negligently harms person or property of V. P suffers a pecuniary loss as a result.* P has no claim against D. See Supp. 29-31. * For example, the harm prevents V from performing a contract that is advantageous to P and P has no claim against V for damages under the contract.

5. There are limited exceptions. • A spouse, children, and parents (if the victim has no spouse or children) may recover for loss of financial support in a wrongful death action or typically in a claim for loss of consortium. • In times long past a master could recover damages if he lost a servant’s services. See p. 30.

6. Fugro Spatial Solutions (WSACA 2011), Supp. 30. As a result of negligence of engineer and pilot a small crashes killing 2 and seriously injuring 3 key employees of small start up company, causing its investors enormous financial harm. The trial court allowed the claim relying on Australian cases embracing an expansive view of the reach of negligence. The court of appeals rejected this basis for the claim but allowed the claim as to the 3 living employees on the basis of a master’s action for loss of a servant’s services.

7. What of analogous claims for emotional disturbance in response to the death or bodily injury of another? Someone with standing may recover for “loss of society, companionship, and advice” as well as loss of financial support in a wrongful death action or sometimes on a claim for loss of consortium. • CACI No. 921. Wrongful Death (Death of an Adult) • . . . • P also claims the following noneconomic damages: • 1. The loss of Pd’s love, companionship, comfort, care, assistance, protection, affection, society, moral support; • 2. The loss of the enjoyment of sexual relations. • No fixed standard exists for deciding the amount of noneconomic damages. You must use your judgment to decide a reasonable amount based on the evidence and your common sense. If child is the plaintiff substitute “the loss of training and guidance.”

8. In principal these wrongful death damages do not include the shock of learning of a loved one’s death. Persons without standing to bring a wrongful death or a survival action may not recover for emotional disturbance they experience as a result of an accident if they are not physically harmed in the accident. A negligently runs over and kills a toddler. B, a by-stander who is unrelated to the toddler, suffers severe emotional disturbance from seeing the accident. A is not liable to B.

9. Text pp. 64-65 describe two limited exceptions . . .

10. The stages of development of these doctrines shows how the common law develops the old-fashioned way . . . Begin with a rule that if P suffers physical harm as a result of a physical impact, then P may recover for any emotional disturbance associated with the event even if the disturbance is not consequent on the impact and the physical harm (e.g., freight preceding the impact). Along come cases like Purcell (Minn. 1892)(pregnant woman suffers miscarriage in street car accident) leading courts to relax the requirement of a physical impact. Eventually it becomes easier to have a rule that anyone in the zone of danger may recover if they suffer sufficiently severe emotional trauma. Maybe require physical manifestation.

11. Often the trauma is a result of the death or mutilation of a loved one in the accident. A happy by-product of the zone-of-danger rule is that reaches this sort of harm. But then a claim is made where a mother standing by road sees a car hit her young child . . .

12. You saw something like this in negligence. Limited pockets of liability expand gradually until someone has the brilliant idea that these should be unified in a general theory of liability for negligent infliction of emotional distress. Molien v. Kaiser Foundation Hospital (Cal. 1980), Text 65. D negligently diagnoses P’s wife as having an STD. P suffers as a consequence in part because his wife thinks P cheated. Is a claim available under zone of danger or bystander liability? Does the court establish a new pocket of liability or does it say a claim generally is allowable for negligent infliction of emotional distress? If the latter, what limits does the court place on this expanded theory of liability?

13. There is no claim in California today on a general theory of negligent infliction of emotional distress. Nor elsewhere in the common law world save perhaps a few remaining holdouts. Molien is assigned to the pocket for negligent performance of an undertaking alongside cases like Gammon v. Osteopathic Hospital of Maine, p. 65 (negligent handling of corpse).

14. The backdrop to Henderson v. Merrett Syndicates, Ltd. (H.L. 1995)(Goff, J.), p. 18

15. A overpays for property relying on an inaccurate appraisal significantly overvaluing the property. The appraiser is hired by the seller. • B advances credit to a customer relying on inaccurate information regarding the customer’s credit worthiness supplied by the customer’s bank. In both cases the information is inaccurate because of carelessness by the information supplier (the appraiser or bank). In both cases the victim predictably suffers a loss because it relied on the inaccurate information. In both cases the information was supplied in part for the purpose that the victim might rely upon the information.

16. A overpays for property relying on an inaccurate appraisal significantly overvaluing the property. The appraiser is hired by the seller. • B advances credit to a customer relying on inaccurate information regarding the customer’s credit worthiness supplied by the customer’s bank. Would the victim have a claim against the information supplier under German law? On what legal basis? It is difficult to frame these as contract claims in the common law because of the absence of a promise or agreement, the requirement of consideration, and slow recognition of the possibility that a contract could create rights in a non-party (a theory of “third party beneficiary”).

17. A overpays for property relying on an inaccurate appraisal significantly overvaluing the property. The appraiser is hired by the seller. • B advances credit to a customer relying on inaccurate information regarding the customer’s credit worthiness supplied by the customer’s bank. Until the early 20th century a tort claim was unavailable under a rule that misstatement was actionable in tort only if there is deceit (fraud). In the US since roughly the 1920’s a claim has been available in such cases under the tort of “negligent misrepresentation.” This tort is categorized alongside deceit (fraudulent misrepresentation). It was not thought part of negligence law.

18. A overpays for property relying on an inaccurate appraisal significantly overvaluing the property. The appraiser is hired by the seller. • B advances credit to a customer relying on inaccurate information regarding the customer’s credit worthiness supplied by the customer’s bank. In 1963 Hedley Byrne & Co. Ltd. v. Heller Partners Ltd. opened the door to such claims in English law and across the commonwealth. The “governing principle” in Henderson is found in Hedley Byrne. See Text 20-23. These are treated as claims in the negligence family—sometimes “negligent misstatement”—and not in the misrepresentation family.

19. Treated as problems of negligence, these claims bear on the general scope of duty in the negligence action. Lord Goff is quite clear about the basis of the duty of care in such cases: • Assumption of responsibility + reliance Thus, after reviewing some of the “speeches” in Hedley Byrne, Lord Goff summarizes at the bottom of Text 22: “All of their Lordships spoke in terms of one party having assumed or undertaken a responsibility towards the other . . . .” He discusses the element of reliance at the top of Text 23, explaining this may take the form of reliance on information that is supplied or reliance on the defendant to render a service.

20. The next paragraph at Text 23 is pregnant with meaning . . .

21. Lord Goff begins the paragraph observing “In seeking to contain that category of persons within reasonable bounds, there has been some tendency on the part of the courts to criticize the concept of ‘assumption of responsibility’ as being ‘unlikely to be a helpful or realistic test in most cases.’” The rest of the paragraph basically argues that while “assumption of responsibility” may not be necessary for there to be a duty of care it should be sufficient (absent exculpatory language). “the concept provides its own explanation why there is no problem in cases of this kind about liability for pure economic loss . . . ” How can a concept “provide its own explanation”? Is the point self-evident?

22. “It follows that, once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further inquiry whether it is ‘fair, just, and reasonable’ to impose liability for economic loss . . .” • Recall the three factor test for duty (Text 16): • Was the injury reasonably forseeable? • Was there a sufficient relationship of proximity between the parties? • Is it just and reasonable to impose a duty on the defendant? • This is from Anns v. Merton London Borough Council (H.L. 1978)(stated as two factors) and was repudiated by the Law Lords at few years before Henderson. What point is Lord Goff making? Is he a fan of the three-factor test? What is the comparative advantage of “assumption of responsibility.”

23. A duty can arise from “assumption of responsibility” without reliance . . . T hires a lawyer, D, to prepare a will instructing that a large bequest go to P. Due to D’s carelessness the will is ineffective and so P receives no bequest on T’s death. Most everywhere P has a claim against D. In England, White v. Jones (1995) and California, Biakanja v. Irving (1958), this is a negligence claim. See Supp 28 n. 13 for citations. A similar concept can be used to explain the pocket of liability for pure emotional disturbance that covers botched burials and the like. The concept might also cover Molien with a little stretching.

24. Returning to the problem of pure economic loss, as I explain at Supp 31-33 there are a few pockets of liability that cannot be explained by the concept of assumption of reliance. • Private losses consequent on harm to public resources (fishermen’s claims in wake of oil spill) • Preventive expenses (medical monitoring after exposure to toxins) In the same article I go on to discuss “hard cases.” An applicant for a job loses the job as a result of a false positive in a drug test. Someone’s credit is harmed after a credit card company issues a card in their name to an identify thief. A farmer cannot sell his crop as a result of a quarantine imposed because of a blight at a neighboring farm.

25. Zone of danger Bystander liability Assumption of responsibility Preventive expenses Harm to public resources Assumption of responsibility General principle of liability for carelessly caused physical harm* Pure emotional disturbance Pure economic harm * Typically misfeasance and more or less direct harm. * Carries liability for attendant economic harm and emotional disturbance.

26. An “assumption of responsibility” could also be described as a contract, which brings us back to . . . . Henderson v. Merrett Syndicates, Ltd. (H.L. 1995)(Goff, J.), p. 18 These are negligence claims brought by names of Lloyds of London against agents and subagents for mismanagement. Certainly the claims against agents could be brought as contract claims. There was also a contractual basis of recovery against the subagents. The plaintiffs seek permission to bring negligence claims because of the longer statute of limitations and to simplify recovery from subagents.

27. Lord Goff’s opinion thoroughly explores problems that arise from treating carelessness in performing a voluntary undertaking sometimes as a breach of contract, sometimes as negligence, and sometimes as either or both. This is the problem of “concurrent liability.” • Part VI explains: • How the common law got in this position tracing the story from long ago (pp. 25-26) to recent times (27-28). • The practical importance of the choice between contract and negligence (p. 26 middle half). • How other common law nations (pp. 28-29) and civil law nations (p. 25) have dealt with the problem .

28. Lord Goff basically concludes while it is untidy we can live with concurrent liability so long as a negligence claim is not used to secure advantage by leap-frogging over a contract when parties are connected by a chain of contracts (p. 30) and so long as exculpatory terms are respected (Part V, pp. 24-25).

29. Lord Goff’s “speech” in Henderson and Judge Calabresi’s opinion in McCarthy v. Olin Corp., are close in time (1994 and 1997, respectively) and, in a sense, address the same fundamental issue, which is how to go about defining the scope of the negligence action, albeit on two very different dimensions. Both are by extraordinarily well-respected judges who are at the top of their form. Looking at the two documents, do US judges approach the law in the same way as English judges? If you find the approaches to be different, then what are the differences? What are the advantages and disadvantages of each approach?

30. Molien v. Kaiser Foundation Hospitals, Text 65, takes yet another approach. The opinion a new potentially expansive theory of liability without addressing its limits. What do you think of this?